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Don’t Wait, Plan Now For EmergenciesIMPORTANT NOTICE: This article is provided solely for research and archival purposes. MCLE self-study credit is no longer available. Even if you follow the instructions and submit payment you will not be granted MCLE self-study credit. Please note that low-cost MCLE is provided by the California Lawyers Association, pursuant to Business and Professions Code section 6056. Succession and contingency planning is essential to protect clients and avoid discipline or malpractice By Willis S. Baughman
The following story is based on a real case. The names have been changed and events altered, but the malpractice and ethics lessons remain unaltered. It’s three o’clock on a rainy Friday afternoon and Chance Rambo, the successful 55-year-old trial lawyer, is driving home. He just finished one rough month and expects another. But it’s Friday, after all, and he needs a rest. Worried about his problems, Chance probably didn’t notice the large semi spinning out of control before it slammed directly into him. Monday morning, Chance finds himself in Intensive Care, groggy after several hours of surgery. Before drifting back into deep, anesthesia-induced sleep, he is able to mutter to his wife, “Who’s taking care of the office?” Chance, who took a chance with his practice, his clients and his family, has reason to be concerned. He never considered what would happen if an emergency prevented him from tending to his practice and fulfilling his client obligations. Chance never considered the importance of succession planning. It took time, but Chance did recover. However, during his convalescence, he lost all his clients, was sued four times for legal malpractice, had his errors and omissions policy cancelled, and the State Bar took over his law practice and closed it down. Over a one-year period, Chance lost his license to practice law and was on the verge of bankruptcy. Most lawyers never consider that some unforeseen event might prevent them from handling their professional responsibilities. But the reality is that most lawyers will face an interruption in their ability to practice at least once during their careers. The need to effectively address the issue of succession planning is an issue of widespread concern due to the potential for serious harm to clients and a loss of confidence in the legal profession by the general public. It is a challenge that goes to the very core of our profession. While there is no professional obligation requiring lawyers to have succession planning, prudent lawyers should have a contingency plan in place. Both the Business & Professions Code and the Probate Code provide models for succession planning, but with different outcomes. The B&P Code, primarily concerned with client protection, provides for liquidation of a practice, while the Probate Code offers a procedure for protecting the practice as an asset. Attorneys owe fiduciary duties to their clients: duties of loyalty and confidentiality and the duty to render services competently. There is compelling authority for finding that attorney competence includes anticipating events or circumstances that may adversely affect client representation. (Vapnek, Tuft, Peck & Wiener, California Practice Guide: Professional Responsibility (The Rutter Group 2008) 6:24.3.) Arguably, anticipating events that might pose a risk to a client’s interests is the essence of practice contingency and succession planning. Practice interruption may affect a lawyer’s fiduciary obligations and breaching those duties will produce harsh consequences. A lawyer without a succession or contingent plan is likely to face State Bar discipline as well as legal malpractice exposure. Moreover, a significant interruption in practice continuity may provide a sufficient basis to permit the State Bar to petition the Superior Court to assume jurisdiction over an absent lawyer’s practice under Bus. & Prof. Code §6180 and §6190. The court will assume jurisdiction over the practice if it is determined a lawyer is not able to fulfill client obligations because he/she has become incapable of devoting adequate time and of providing the quality of service necessary to protect client interests, and there are unfinished client matters for which no other attorney has agreed to assume responsibility. The State Bar and the Superior Court have the authority to take over management and control, and to close the practice. (B&P C. §§6180/6190.) While the court may appoint a volunteer attorney, the process often involves a State Bar attorney who takes over and manages the practice until it can be closed. The appointed lawyer can examine files and records, obtaining information as to any pending matters that may require attention. He or she notifies the clients, informing them that it may be in their best interest to obtain other legal counsel (B&P C. §6180.5). Any persons examining files and records of the law practice of the affected attorney shall observe the lawyer-client privilege and make disclosure only to the extent necessary to accomplish the purpose for which the affected attorney was retained. Until new counsel is obtained, the appointed attorney has the authority to control all operations and bank accounts of the practice (B&P C. §6180.5). A grim prospect Undoubtedly, having one’s law practice taken over by the State Bar (or a volunteer lawyer appointed by the Superior Court) is a grim prospect for any lawyer. While no substitute for a lawyer’s failure to prepare an advance succession plan, proceeding under Bus. & Prof. Code §§6180/6190 may, however, be the only hope for risk management and client protection in the event of an unforeseen practice interruption. Client protection is the goal, but by its very nature the process runs adverse to client interests and threatens destructive consequences for the lawyer as well as the lawyer’s practice, family and friends. However, because the process is under the auspices of the superior court, the appointed lawyer will not be liable to a particular client to whom harm might befall. (B&P C. §6180.11.) Under the Business and Professions Code, the purpose is to terminate client relationships and wind down and close the lawyer’s practice as quickly and efficiently as possible. Consequently, since the practice is often the only or principal asset in the lawyer’s estate, there will most likely be nothing left for either the heirs of a deceased lawyer or for the living expenses of a permanently disabled lawyer. While it is ethical for a lawyer to sell all or most of his/her practice, after the practice is wound down under the Business and Professions Code, there may be nothing to sell. (Cal. Rls. Prof. Cond. rule 2-300.) The protocol under Bus. & Prof. Code §§6180/6190 does not contemplate that disabled or incapacitated lawyers often recover from their illness or injury. If the Superior Court acted under §§6180/6190, the recovered or recovering lawyer will face a number of serious obstacles. Once the court proceeds under §§6180/6190, the lawyer is automatically placed on inactive status and must seek reinstatement to resume practice. (B&P C. §6007(b)(2).) Reinstatement depends on the lawyer’s ability to prove he or she is competent to practice law, a long, tedious process that usually takes a year or more. Once reinstated, the lawyer must petition the court to terminate jurisdiction over the practice. (B&P C. §6190.6.) Since nothing was done to preserve the value of the practice, there will be no practice to return to. This prospect alone should motivate most prudent practitioners to acknowledge the pressing need to have a contingent plan in place. Multidisiciplinary process Any practice succession plan must be approached as a multidisciplinary process that takes into account lawyers’ unique duties and obligations. Planning should involve various professional advisors, including, for example, an estate planning attorney, an ethics/risk management attorney, accountant, financial advisor and insurance representative. Following is a very general illustration of the planning process as well as some critical issues to consider along the way. The first step is to identify someone to act as a successor attorney. The arrangement with the successor will be defined by the nature of the planning attorney’s practice. As a practical matter, several potential successor attorneys should be made available. Considerations include insuring that the successor attorney understands the magnitude of the role, is willing to undertake that responsibility and is competent in the planning attorney’s area of practice. (Streit v. Covington and Crowe (2000) 82 Cal.App.4th 44.) Moreover, the successor attorney must be someone the planning attorney knows to be trustworthy, responsible, accountable and, of course, covered by current professional errors and omissions liability insurance. Finding the right successor attorney is vital. He or she will not only protect the lawyer’s clients, but the personal, financial and family interests of the disabled or deceased lawyer by preserving the integrity and value of the law practice. Thus, with a proper plan, a lawyer who has sufficiently recovered from a disability may return to active practice full or part time. If that is not possible, the practice may be transferred to another attorney, wound down and closed, or sold. Advantages of the Probate Code Probate Code provisions provide for court supervision of a deceased or disabled lawyer’s practice while protecting both clients and the integrity of the practice. Pursuant to §§2468 and 9764, the conservator of a disabled attorney and the personal representative of a deceased attorney may bring a noticed petition seeking the appointment of the successor attorney to be a practice administrator and to take control of the disabled or deceased attorney’s practice. (Prob. C. §2468 (disabled attorney) & §9764 (deceased attorney); Vapnek, Tuft, Peck & Wiener, California Practice Guide: Professional Responsibility (The Rutter Group 2008) 1:38.2, p 1-85.) If the attorney’s estate planning documents include advance health care directives in the event of disability, the authority granted must be sufficiently comprehensive to allow the personal representative to speak for the attorney in matters regarding the law practice, including petitioning the Superior Court for appointment of a practice administrator (Prob. C. §2468), thereby avoiding the need to appoint a conservator. While the successor attorney, upon becoming the practice administrator, will be required to post bond before any work may be commenced, the Probate Code has a number of features that are ideal for advance succession or contingent planning. First, the court will generally appoint the attorney named in a written document prepared in advance by the planning attorney, unless to do so would adversely impact on clients or other persons interested in the planning attorney’s practice or estate. (Prob. C. §2468(f) and §9764(f).) Second, the court may waive notice if it determines that immediate appointment of a practice administrator is required to safeguard the interests of the estate or otherwise would be in the best interests of persons interested in the estate or practice. (Prob. C. §2468(b) and §9764(b).) Third, duties and powers of a practice administrator will be specifically listed in the court’s order. (Bus. & Prof. C. §6185.) The powers provided a practice administrator under the Probate Code differ dramatically from the duties of a court-appointed attorney under Bus. & Prof. C. §§6180/6190. Specifically, the practice administrator’s duties are geared toward protecting the value of the practice as an asset of the attorney’s estate. Thus, proceeding under the Probate Code will insure immediate action to protect the practice and persons interested in the practice, and will allow the planning attorney to choose in advance the practice administrator and provide advance directives and instructions as to how the practice will be maintained. For example, if the planning attorney became disabled through accident or illness and is unable to practice, but the prognosis is temporary disability and the attorney’s physicians are able to confidently conclude he/she will be able to return to fulltime practice in a matter of weeks or months, the practice administrator will be able to petition the court, provide evidence that the lawyer has recovered the capacity to resume practice, and the practice administrator “shall forthwith terminate and the disabled attorney shall be restored to his or her practice.” (Prob. C. §2468(i).) If the disability is long term or permanent or the attorney has died, the practice administrator has the authority, subject to approval of the personal representative, to create a plan for disposition of the practice. (Bus. & Prof. C. §6185(a)(7).) This includes the sale or other transfer of the practice in accord with the attorney’s advance directives. Because the primary goal is to protect the practice and its value, the practice administrator should be authorized to take steps necessary to insure the practice is propitiously maintained, managed or concluded (Bus. & Prof. C. §6185 (a)(6)), including sale of the practice and its good will (Bus. & Prof. C. §6185 (a)(7).) Once services are concluded the practice administrator shall render an accounting and petition for discharge. (Prob. C. §2468(h) and §9764(h).) While not intended to be exhaustive, this example demonstrates how the Probate Code can be applied to an attorney’s advance plan. Of course, there are many vehicles available to attorneys who want to structure an advance plan. The key point is for practitioners to designate successor counsel to assume responsibility for their practices in the event of their temporary or permanent incapacity or death. The powers outlined at Bus. & Prof. Code §6185 provide a great source for any plan. (Court supervision may be avoided, for example through a trust instrument along with other documents that will allow for the transfer management of the law practice to a trustee. (See, Prob. C. §17200(b) (23) & (24) allowing petition to the superior court for the appointment of a practice administrator if necessary at a future time.) A succession plan must be tailored to the uniqueness of the practice. Additionally, the plan must be a fluid and dynamic document that can be utilized as a progressive guide to manage the issues of transition. When a succession plan is in place, it allows the attorney to anticipate and effectively manage any contingency and the practice will be more likely to survive a transitory period of absence. As ethicist and former State Bar Court Judge Ellen Peck expressed so well, “Our clients, for whom we have worked so hard, deserve something better than absolute chaos if we are suddenly disabled or die. Our loved ones do not deserve the headaches and worry of winding up a law practice at a time when they may be feeling emotionally and financially vulnerable, grieving or themselves incapable of handling the stress of business matters.” •Willis S. Baughman is a solo practitioner in San Luis Obispo, where a portion of his practice focuses on attorney risk management issues. His litigation prevention services include both continuing education workshop, and group and individual consultations. He consults on risk management issues both on an individual and organizational basis. Certification
Self-Assessment TestIndicate whether the following statements are true or false after reading the MCLE article. Use the answer form provided to send the test, along with a $25 processing fee, to the State Bar. If you do not receive your certificate within four to six weeks, call 415-538-2504.
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